Intergenerational wealth management

Intergenerational wealth management

Intergenerational wealth transfer is about to move significant asset values from the accumulators to the next generation: how will they cope?

One of the most difficult financial transitions that those with limited financial literacy or experience in the ‘management’ of wealth and assets, is the one from modest wealth to substantial financial resources over a short period of time. Intergenerational wealth, if not pre-conditioned, is able to be compared with a lottery win in this respect. Have you prepared your beneficiaries for the financial dilemma that will confront them when your estate settles in their favour?

Do you ever reflect on what wealth management skills you learned from your parents?
Can you identify the important financial lessons you have had during your life’s journey?
Are you passing on wealth management skills to your family?

Key intergenerational wealth management topics:

Intergenerational wealth transfer is a growing topic of discussion, heightened by the anticipated passing of ‘baby boomers’ as their life expectancy clocks wind down. In Australia alone, between 2011 and 2030, several billion dollars in property, cash, shares and other assets will be inherited by the next generation(s). Will they be ready to manage what will generally come to them as a lump sum? For some, it will come as a blessing, helping them to overcome financial pressures that have mounted as they have raised their family in a heavily mortgaged home whilst trying to do their best in educating, entertaining and caring for their ever-increasing demands (all of which come at a financial cost).

This naturally leads in to considering the recently debated issue of financial literacy: the knowledge of how to understand a ‘balance sheet’ and to manage the money that causes it to grow (or diminish). The academic curricula our schools are delivering rarely pay any attention to this extremely practical and important life lesson. How much more confident would you feel if your prospective beneficiaries had mature financial skills (i.e., were financially literate?

Life skills are best learned from those we love and trust

Whilst we would all like to see the education system manage teaching more of the life skills that we sometimes feel incapable of passing on to our children and other dependants, the problem is that teaching financial skills is not compatible with the early development priorities of the education system. In this environment this particular task falls on their parent(s)/ carer(s) – and probably will, for the foreseeable future. One of the issues is that children learn from their role models: they mimic what they observe in the people they love and most trust. Children see how easily or challenging financial decisions are for you – and they need to learn from you, how to position themselves for the decisions to be made easier, rather than more challenging. This is intergenerational wealth management skills learning in practice.

In this context we encourage starting the ‘intergenerational wealth transfer’ process by engaging those financially dependent on you in how you use your money, especially when it comes to providing for their requests (particularly the less-reasonable requests made from time-to-time). How do you teach your family the value of money and the relevance of prioritising immediate needs versus longer-term goals? Just as we are all individuals, we each have our own set of circumstances that form the basis of the teaching process we employ for passing on financial skills: for one family it may be that assets abound but cashflow is tight; for another cash flow is being managed to provide for the growth in an asset base; and for others it may be that cashflow is just tight – and there will be a range of variables around all of those situations. So how do we use relevant circumstances to give a positive and constructive experience?

Working to a plan most likely to succeed

Like any training program you will need to consider your objectives for the lesson; the level of understanding of the ‘pupil’; and the alternatives that can be presented for consideration – and then formulate a plan. Over time, you will need to be teaching the pupil about a range of matters that could include goal setting, cash flow, capital adequacy, asset characteristics, earnings rates, risk management, debt management and perhaps even taxation matters just to name a few of the key items: it would also be to their advantage to learn how to use the services of professional advisers (such as lawyers, bankers, accountant/ tax agents and financial planners) at relevant stages of their learning journey.

There are a number of sources available for you to get a background on these and many other financial topics: some are on our own website; and the Commonwealth government has their National Financial Literacy Strategy website that is dedicated to the topic. That site has links to another government website: Money Smart Teaching that has excellent tools for this process. It is worth searching around that site for the very valuable material it offers.

The tools are available: it is up to you to set the plan and for intergenerational wealth management skills to be developed by your children and other dependants.

We can assist in teaching the wealth management process

An ideal part of the learning process is for family members to be involved at relevant times in the presentation and explanation of the strategies that you engage your professional wealth advisers to implement. The experienced advisers at Continuum Financial Planners Pty Ltd welcome – and often invite – opportunities to have intergenerational members of the family sit in on the implementation phases of advice: this is particularly pertinent/ relevant when estate planning strategies are being finalised, but is also beneficial in other circumstances.

To engage one of our advisers, call our office (on 07-34213456) or use the Contact Us facility (linked below) to arrange a meeting.

If you would like guidance on accessing material to help with the financial literacy education of your family, use our website facility to Contact Us with details of your particular needs: we’ll respond promptly. In the meantime, some of the articles referred to above are linked below:

goal setting (the articles that include this topic are strategy-related and specific: we suggest searching our Library Page for these key words);

After 28 years as an accountant in public practice Eric commenced his work in the financial planning industry in October 2000. During his career, Eric has advised clients on a wide range of financial and general investment matters, whilst providing strategic business services to entrepreneurs and senior managers.